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States’ “High-Stakes Bazaar” of Corporate Tax Breaks

December 4, 2012 at 12:57 PM

BY

Nicholas Johnson

An oft-overlooked source of many states’ and localities’ financial problems is their overuse of corporate tax subsidies to try to attract and keep businesses. In a must-read three-part series, the New York Times connects the dots between lucrative tax breaks for corporations and the underfunding of schools and infrastructure.

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. . . . A portrait arises of mayors and governors who are desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many of the officials said they feared that companies would move jobs overseas if they did not get subsidies in the United States.

Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors. . . .

For many communities, the payouts add up to a substantial chunk of their overall spending, the analysis found. Oklahoma and West Virginia give up amounts equal to about one-third of their budgets, and Maine allocates nearly a fifth.

What can be done about it? More transparency and accountability would help.

For example, our 2010 report found (and the Times survey confirmed) that states spend about $1.5 billion a year on subsidies for film and video productions, rarely with any idea of whether these subsidies pay off in the form of added jobs and income. Careful studies usually find that the costs far outweigh the benefits.

States also need better long-term planning. The subsidy wars lead elected officials to put short-term economic gains ahead of long-term investments in workers and communities, like better funding for schools and roads.

As states continue to make tough choices about raising taxes and cutting services, they ought to consider these tax breaks alongside other forms of state spending, not leave a large share of the budget off the table.